How Savings Grows Activity

4.03

Name: Cheyanne Elie Class: POB Date: 12/3/14 How Savings Grow Activity
Directions: Calculate the balance and interest. Section A: Calculate simple interest.
Use the simple interest rate formula: P=Principal, R=Rate, T=Time and I=Interest
Rate
P * R * T= I.
Example: $500*.03*1=$15 Principal
Rate
Time
Amount of
Ending
Interest
Balance
$500
3%
1 year
$15
$515
$500

8%

1 year

$41

$540

$500

8%

2 years

$80

$581

$500

8%

3 years

$120

$620

$4,500

8%

3 years

$1,080

$5,580

$4,500

10%

3 years

$1,350

$5,850

Section B: Calculate interest compounded annually.
Computed on amount saved plus interest previously earned Year
Beginning Balance
8% Interest
1

$500

$40

$540

2

$540

$43.2

$583.1

3

$582.20

$46.7

$629.66

4

$ 629.86

$50.39

$680.26

5

$680.25

$54.42

$734.8

Total Amount of Interest

Ending Balance

$234.71

4.03

How Savings Grow Activity Continued Section C: Calculate interest compounded quarterly at 8% annual interest rate. 1. Multiply the principal (beginning balance) by ¼ of the interest rate to determine the amount of interest paid for the first quarter.
2. Multiply the (principal + first quarter interest) by ¼ of the interest rate to determine the amount of interest paid for the second quarter. Interest paid for remaining quarters is based on principal and interest paid the previous quarters. 2. Add the four quarters of interest together to determine the total interest for year. 3. Add beginning balance and total interest for the year to determine ending balance. 4. The ending balance becomes the beginning balance for the next year.

Year Beginnin
First Second Third
Fourth
Total
Ending
g Balance Quarter Quarter Quarter Quarter Interest Balanc
$500
e
1
$500.00
10.00
10.20
10.40
10.61
41.21
541.3

2

$541.21

10.82

11.04

11.26

11.49

44.61

585.8

3

$585.82